United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended February 28, 1998
or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition period from ______ to ______
Commission File Number: 0-11763
COMMERCIAL PROPERTIES 2, L.P.
Exact Name of Registrant as Specified in its Charter
Virginia 13-3130258
State or Other Jurisdiction of
Incorporation or Organization I.R.S. Employer Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn: Andre Anderson 10285
Address of Principal Executive Offices Zip Code
(212) 526-3237
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
Consolidated Balance Sheets At February 28, At November 30,
1998 1997
Assets
Real estate assets held for disposition $ 7,070,337 $ 12,310,284
Cash and cash equivalents 1,270,789 11,803,602
Restricted cash 20,527 65,600
Rent and other receivables, net of
allowance for doubtful accounts of
$109,965 and $48,670 in 1998 and 1997 138,313 180,295
Prepaid expenses, net of accumulated
amortization of $1,230,450 in 1997 2,658 16,811
Total Assets $ 8,502,624 $ 24,376,592
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 338,573 $ 323,179
Due to affiliates 79,612 105,612
Distribution payable _ 10,780,847
Security deposits payable 23,090 59,514
Total Liabilities 441,275 11,269,152
Partners' Capital (Deficit):
General Partners (154,820) (191,982)
Limited Partners
(100,000 units outstanding) 8,216,169 13,299,422
Total Partners' Capital 8,061,349 13,107,440
Total Liabilities and
Partners' Capital $ 8,502,624 $ 24,376,592
Consolidated Statement of Partners' Capital (Deficit)
For the three months ended February 28, 1998
General Limited
Partners Partners Total
Balance at November 30, 1997 $ (191,982) $ 13,299,422 $ 13,107,440
Net income 37,162 3,679,065 3,716,227
Distributions _ (8,762,318) (8,762,318)
Balance at February 28, 1998 $ (154,820) $ 8,216,169 $ 8,061,349
Consolidated Statements of Operations
For the three months ended February 28, 1998 1997
Income
Rent $ 615,353 $ 934,983
Interest 230,607 20,900
Other 9,921 10,687
Total income 855,881 966,570
Expenses
Property operating 308,212 358,935
Depreciation and amortization _ 347,015
General and administrative - other 55,276 64,682
General and administrative - affiliates 8,298 9,284
Total expenses 371,786 779,916
Operating income 484,095 186,654
Gain on sale of real estate assets 3,232,132 _
Net Income $3,716,227 $ 186,654
Net Income Allocated:
To the General Partners $ 37,162 $ 1,867
To the Limited Partners 3,679,065 184,787
$3,716,227 $ 186,654
Per limited partnership unit
(100,000 outstanding) $36.79 $1.85
Consolidated Statements of Cash Flows
For the three months ended February 28, 1998 1997
Cash Flows From Operating Activities:
Net income $ 3,716,227 $ 186,654
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization _ 347,015
Gain on sale of real estate assets (3,232,132) _
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Restricted cash 45,073 4,897
Rent and other receivables 41,982 (39,621)
Prepaid expenses 14,153 27,952
Deferred rent receivable _ 9,867
Accounts payable and accrued expenses 15,394 (49,863)
Due to affiliates (26,000) 3,178
Security deposits payable (36,424) _
Net cash provided by operating activities 538,273 490,079
Cash Flows From Investing Activities:
Proceeds from sale of property 8,762,318 _
Additions to real estate (290,239) (22,225)
Net cash provided by (used for)
investing activities 8,472,079 (22,225)
Cash Flows From Financing Activities:
Cash distributions (19,543,165) (429,293)
Net cash used for financing activities (19,543,165) (429,293)
Net increase (decrease) in cash and
cash equivalents (10,532,813) 38,561
Cash and cash equivalents, beginning of period 11,803,602 1,739,498
Cash and cash equivalents, end of period $ 1,270,789 $ 1,778,059
Supplemental Schedule of Non-Cash Investing Activities:
Write-off fully depreciated
building improvements $ _ $ 10,666
Supplemental Disclosure of Non-Cash Operating Activities:
In connection with the General Partners' intent to sell the property, real
estate held for investment, deferred rent receivable and prepaid leasing
commissions in the amounts of $6,799,011, 45,635, and $225,691, respectively,
were reclassified to "Real estate assets held for disposition." In
connection with the sale of Maitland Center Office Building C, deferred rent
receivable, and prepaid leasing com-missions in the amounts of $50,555, and
$65,899 were netted against Gain on sale of real estate assets.
Notes to the Consolidated Financial Statements
The unaudited interim consolidated financial statements should be
read in conjunction with the Partnership's annual 1997 audited
consolidated financial statements within Form 10-K.
The unaudited consolidated financial statements include all
normal and reoccurring adjustments which are, in the opinion of
management, necessary to present a fair statement of financial
position as of February 28, 1998 and the results of operations
and cash flows for the three months ended February 28, 1998 and
1997 and the statement of partners' capital (deficit) for the
three months ended February 28, 1998. Results of operations for
the period are not necessarily indicative of the results to be
expected for the full year.
Certain prior year amounts have been reclassified in order to
conform to the current year's presentation.
The following significant event has occurred subsequent to fiscal
year 1997 which requires disclosure in this interim report per
Regulation S-X, Rule 10-01, Paragraph (a)(5).
On December 19, 1997, the Partnership closed on the sale of
Maitland Center Office Building C. The Property was sold for net
proceeds of $8,762,318 to CMD Realty Investment Fund III, L.P.,
an Illinois Limited partnership (the "Buyer"), which is
unaffiliated with the Partnership. The selling price was
determined by arm's length negotiations between the Partnership
and the Buyer. The transaction resulted in a gain on sale of
approximately $3.2 million, which is reflected in the
Partnership's statement of operations for the period ending
February 28, 1998.
Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
On December 19, 1997, the Partnership closed on the sale of
Maitland Center Office Building C. The Property was sold for net
proceeds of $8,762,318 to CMD Realty Investment Fund III, L.P.,
an Illinois Limited partnership (the "Buyer"), which is
unaffiliated with the Partnership. The selling price was
determined by arm's length negotiations between the Partnership
and the Buyer. The transaction resulted in a gain on sale of
approximately $3.2 million.
The Partnership is in the process of selecting a real estate
brokerage firm to assist with the efforts in marketing for sale
the Partnership's sole remaining property, Two Financial Centre
(the "Property"). While it is currently anticipated that the
Property will be sold and the Partnership liquidated in 1998,
there can be no assurance that the Property will be sold within
this time frame, or that any sale, if completed, will result in a
particular price.
The Partnership had cash and cash equivalents at February 28,
1998 of $1,270,789 compared with $11,803,602 at November 30,
1997. The decrease is primarily a result of the payment on
February 18, 1998 of a special cash distribution, as discussed
below. Primarily as a result of the sale of the Maitland
Property, the following balance sheet categories decreased from
November 30, 1997 to February 28, 1998: restricted cash, prepaid
expenses, security deposits payable. Rent and other receivables
decreased from $180,295 at November 30, 1997 to $138,313 at
February 28, 1998. The decrease is primarily due to rent
receivables from two tenants at the Property which were deemed to
be uncollectable. Accounts payable and accrued expenses
increased from $323,129 at November 30, 1997 to $338,573 at
February 28, 1998. The increase is primarily due to the timing
of payments for property improvements at Two Financial Center.
During the first quarter of fiscal 1998, six new leases totaling
27,223 square feet and two lease renewals totaling 3,641 square
feet were executed at Two Financial Centre. One tenant
representing 657 square feet, vacated the Property upon the
expiration of its lease. As a result, the Property was 99%
leased as of February 28, 1998 compared with 77% as of February 28, 1997.
During the remainder of fiscal 1998, six leases totaling 38,339
square feet, or approximately 34% of the Property's leasable
area, are scheduled to expire. Additionally, a tenant whose
lease representing 29,972 square feet or 26% of the property was
scheduled to expire in July 2000, notified the Partnership of its
intent to exercise an early termination option within it's lease,
as a result the tenant is expected to vacate the property in
October 1998. The General Partners are aggressively marketing
this space for lease.
On February 18, 1998, the Partnership paid a special cash
distribution to Limited Partners totaling $195.39 per Unit. The
distribution included the net proceeds received from the sales of
the Maitland Property in the amount of $87.62 per Unit, and
Swenson Business Park - Building C (the "Swenson Property") in
the amount of $103.52 per Unit, plus cash flow from operations
generated during the three months ended November 30, 1997 in the
amount of $4.25 per Unit. In order to fund required capital
improvements at the Property and maintain adequate cash reserves,
cash distributions were suspended beginning with the 1998 first
quarter distribution, which would have been paid on or about
April 15, 1998. Once the Property is sold, the General Partners
will distribute the net proceeds together with the Partnership's
remaining cash reserves (after payment of or provision for, the
Partnership's liabilities and expenses), and dissolve the
Partnership.
Results of Operations
Partnership operations resulted in net income of $3,716,227 for
the three months ended February 28, 1998, compared to $186,654
for the three months ended February 28, 1997. The increase is
primarily due to a gain on the sale of the Maitland Property of
$3,232,132 in the 1998 period. Excluding this gain, operating
income totaled $484,095 for the three months ended February 28,
1998. The increase in operating income is primarily due to a
decrease in depreciation expense, due to the sale of the Maitland
Property and the reclassification of Two Financial Centre to Real
estate assets held for disposition, and an increase in interest
income.
Primarily as a result of the sale of the Maitland Property and
the Swenson Property, the following categories on the income
statement decreased from the three months ended February 28, 1997
to the corresponding period in 1998: rental income, property
operating expense, and depreciation and amortization.
Interest income totaled $230,607 for the three months ended
February 28, 1998, compared with $20,900 for the corresponding
period in fiscal 1997. The increase reflects the Partnership's
higher average cash balance in the 1998 period due to proceeds
received from the sale of the Swenson and Maitland Properties.
General and administrative expenses (other) totaled $55,276 for
the three months ended February 28, 1998 compared to $64,682 for
the same period a year earlier. The decrease is primarily due to
lower partnership servicing fees. The decrease was partially
offset by an increase in legal costs associated with the sale of
the Swenson and Maitland Properties.
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K:
On January 2, 1998 the Partnership filed a Form 8-K
reporting that on December 19, 1997, the Partnership
executed a sale of Maitland Center Office Building C.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COMMERCIAL PROPERTIES 2, L.P.
BY: Real Estate Services VII, Inc.
General Partner
Date: April 14, 1998
BY: /s/Jeffrey C. Carter
Jeffrey C. Carter
Director, President and Chief
Financial Officer
Date: April 14, 1998
BY: /s/Michael T. Marron
Michael T. Marron
Vice President
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Nov.-30-1997
<PERIOD-END> Feb-28-1997
<CASH> 1,291,316
<SECURITIES> 000
<RECEIVABLES> 138,313
<ALLOWANCES> (109,965)
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 000
<DEPRECIATION> 000
<TOTAL-ASSETS> 8,502,624
<CURRENT-LIABILITIES> 441,275
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 8,061,349
<TOTAL-LIABILITY-AND-EQUITY> 8,502,624
<SALES> 467,733
<TOTAL-REVENUES> 855,881
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 371,786
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 000
<INCOME-TAX> 000
<INCOME-CONTINUING> 484,095
<DISCONTINUED> 000
<EXTRAORDINARY> 3,232,132
<CHANGES> 000
<NET-INCOME> 3,716,227
<EPS-PRIMARY> 36.79
<EPS-DILUTED> 36.79
</TABLE>
